Karachi, July 14, 2024 – The outlook for the Pakistani rupee against the US dollar has improved following a recent staff-level agreement (SLA) between the International Monetary Fund (IMF) and Pakistan.
This agreement promises a $7 billion loan, pending approval by the IMF executive board. This infusion is expected to bolster Pakistan’s foreign exchange reserves and improve its balance of payments.
In the past week, the rupee showed resilience, trading within a narrow range while receiving positive news. On Monday, it ended at 278.5 per dollar in the interbank market and closed slightly higher at 278.4 on Friday.
A significant contributor to this positive sentiment has been the increase in remittances from overseas Pakistani workers, which surged to $3.2 billion in June, marking a 44% increase from the previous year. Additionally, the central bank’s foreign exchange reserves have remained steady at $9.4 billion over the past two weeks. The rupee-dollar exchange rate has stabilized below 280, a significant recovery from its peak of 307.5 in June 2023.
Pakistan’s signing of a new 37-month Extended Fund Facility (EFF) with the IMF is seen as a major milestone. This achievement follows the successful conclusion of a $3 billion Standby Arrangement (SBA) in April this year. The IMF emphasized that reducing inflation, expanding access to financing, and building robust external buffers are crucial for the country’s development and resilience.
Arif Habib Limited, in a recent note, highlighted the positive impact of the new EFF program on the external sector outlook. “We anticipate the Pakistani rupee (PKR) to remain stable in the short to mid-term, driven by positive sentiment arising from the new program,” the note stated.
Financial services firm Tresmark echoed this optimism, noting that the early announcement of the IMF agreement positions the rupee for further consolidation. The firm expects increased inflows of hot money, additional multilateral financial assistance, and higher export proceeds to support the rupee. Additionally, equity markets, which are already nearing record highs, are likely to benefit from this positive development.
Despite these optimistic forecasts, Tresmark cautioned that substantial gains in the rupee’s value are not anticipated in the immediate term. The rupee is expected to hover around the 278 per dollar level.
In light of these developments, premiums for 3-6 month tenors have increased. The past week saw some forward selling by exporters, and the upcoming week is expected to bring significant market inflows. Exporters are likely to find the 1-3 month tenor range particularly appealing for selling their dollars.
Overall, the new IMF agreement has instilled a sense of stability and optimism in the market, providing a much-needed boost to the Pakistani rupee and the broader economy.